INDUSTRY OVERVIEW
GLOBAL HEALTH CLUB INDUSTRY
PROVES
RESILIENT
BY KRISTEN WALSH
F
inancially speaking, for many health clubs, 2011 was the first real
positive year since 2007. “Last year (2012) continued on that path,”
concluded Rick Caro, the president of Management Vision, Inc., a
club consulting company based in New York, New York.
According to another expert - Dr. Art Curtis, the
president of Curtis Club Advisors, LLC, located in
Wellesley, Massachusetts, and chairman ex-officio
of IHRSA’s board of directors - the industry has
clearly demonstrated that it can weather a storm.
“We’ve been more stable than other
industries, probably because of our membership model, which is based on monthly
dues and a recurring revenue stream,
observed Curtis. “This industry doesn’t
react in a volatile fashion, which should
reassure investors.”
The business community has taken note of
our industry’s impressive accomplishments.
Dr. Art
Curtis
In December 2012, Inc. magazine named
Zumba its “Company of the Year” for 2012,
describing it as “the quintessential global business.”
At that time, founder Alberto Perlman predicted that
2013 would be about experiential fitness. “If you’re
going to spend three to six hours in a gym every
week, why not do something that makes you happy
while you’re there?” he asked.
Inc. also recognized Perlman as one of its Top 5
CEOs to Watch in 2013.
Also in December, Anytime Fitness, which now
operates in 14 countries, opened its 2,000th unit,
and placed sixth on Entrepreneur magazine’s
annual Franchise 500 list. Also making the list
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Zumbathon for ALS participants
worked up a sweat during IHRSA 2013
were Jazzercise (#27), Snap Fitness (#35), Planet
Fitness (#74), Gold’s Gym International (192), and
Retro Fitness LLC (#270). The factors considered
for inclusion on the list include a company’s financial
strength and stability, growth rate, and size of its
franchise system.
In February, Forbes magazine placed Anytime
Fitness at #14 on its America’s Most Promising
Companies list. The rankings are based on growth
(both in sales and hiring), quality of management
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INDUSTRY OVERVIEW
According to the most recent edition of
IHRSA’s Profiles of Success, which was
published in December 2012 and analyzes
club financial and operational benchmarks
for 2011, participating clubs saw their
net membership increase by 3.1% and
their revenues increase by 3.6% during
that year.
Dr. Sherry S.
While such modest growth might not
Cooper
normally be considered a great success,
coming as it does on the heels of five years of
unpredictable – often stormy – economic conditions,
it’s viewed by industry leaders as confirmation
of the industry’s resilience and potential.
Bill McBride, the COO of Club One, Inc.,
based in San Francisco, California, and the
chairperson of IHRSA’s board of directors,
noted that club owners had to be vigilant and
diligent to be successful in such challenging
circumstances.
“Sustaining growth in an environment
marked by 9% unemployment and weak
consumer confidence has been a major
Bill McBride
obstacle to overcome,” he said. “We’ve all felt
the financial stress, either personally, or through
family and friends.”
For some time, there’s been talk of consolidation
in the health club industry, prompted, in part, by
the economic conditions that have prevailed for the
past few years. The notion gained credence recently
when LA Fitness, the Irvine, California-based chain,
announced it had entered into an agreement to
purchase all 33 facilities of Lifestyle Family Fitness
(LFF), based in St. Petersburg, Florida.
Shortly after acquiring seven former Gold’s Gym
facilities to add to its portfolio, GoodLife Fitness
Anytime Fitness
recently opened
its 2,000th facility
team and investors, margins, market size and
key partnerships.
Gerry Thomas, CFO of Anytime Fitness, said
in a press release that the company plans to
quadruple in size – to 4,000 clubs in the U.S.
and 4,000 clubs worldwide – before 2020.
NORTH AMERICA
The U.S. is on the rebound, and growth could well
accelerate to the 3% range by 2014, thanks to the
one missing link in the tepid recovery – housing,
Dr. Sherry S. Cooper, executive vice president and
chief economist of economic research for BMO
Financial Group in Toronto, Ontario, Canada, told
CBI in January. “Retail sales are accelerating as
household net worth is rising relative to income,”
she explained. “Consumer confidence is up, and
business confidence will continue to improve once
the dust settles on the fiscal cliff issue.”
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GoodLife Fitness
founder and CEO
David Patchell-Evans
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Crunch Fitness has sold
more than 200 franchises
in just over two years
“SUSTAINING GROWTH IN AN ENVIRONMENT
MARKED BY 9% UNEMPLOYMENT AND WEAK
CONSUMER CONFIDENCE HAS BEEN A MAJOR
OBSTACLE TO OVERCOME.”
bought Extreme Fitness Inc., a competitor with
13 locations in the Greater Toronto area and
surrounding region. The acquisition, announced
in April, increased the number of locations operated
by Canada’s largest fitness chain to more than
300 across Canada.
Franvest Capital Partners portfolio company
Edmonton Fitness Holdings Inc. announced in
September 2012 that it, along with a group of
Edmonton based co-investors, had acquired the
Edmonton assets of World Health Club Inc. The
investment included 10 fitness clubs in the city
of Edmonton and one under construction in
Sherwood Park.
Publicly-traded Life Time Fitness, Inc. (NYSE:
LTM), which operates 105 centers under the Life
Time Fitness and Life Time Athletic Brands in
the U.S. and Canada, reported strong results for
2012. Its revenue reached $1.1 billion, up 11.2%
from 2011, and its EBITDA totaled $324.7 million,
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up 18.8% from the previous year. According to
chairman, president and CEO Bahram Akradi, the
company will unveil three new facilities this year.
LA Fitness announced in October 2012 that
it had purchased substantially all of the assets
relating to the 36 Urban Active clubs in Ohio,
Kentucky, Tennessee, Georgia, Nebraska, North
Carolina, and Pennsylvania.
Spotting an opportunity in the women-only
market, McLean, Virginia-based Titan Fitness
LLC recently acquired Pure Fitness For Women,
a women-only fitness center in Houston, Texas.
The company says it intends to expand Pure
Fitness for Women to other markets. Backed by
Boston private equity company WestView Capital
Partners, Titan Fitness operates 25 fitness
facilities under its Fitness Connection brand in
North Carolina, Texas and Nevada. In December
2012, the company acquired Sports & Fitness
Clubs, a small chain of gyms in the Charlotte,
North Carolina area.
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INDUSTRY OVERVIEW
In March, Crunch announced it had inked a
deal with Fitness Holdings LLC & RLB Holdings
to open an additional 42 clubs across New York,
New Jersey, Massachusetts and Pennsylvania.
Crunch Franchise has grown quickly, selling
over 200 franchises in just over two years. It
was named one of the “Hottest Franchises” for
the second consecutive year by Entrepreneur
magazine and was awarded the prestigious
FBR 50 Award by Franchise Business Review
for outstanding franchisee satisfaction.
UFC Gym continued its worldwide expansion
with the acquisition of LA Boxing, which was
announced in January. Founded in partnership with
New Evolution Ventures (NeV), a private-equity firm
based in Lafayette, California, UFC Gym currently
has five full-service facilities which average 35,000
square feet in California and Hawaii. It has also
started selling memberships for locations in New
York Metro and Sydney, Australia, which will
open this year. UFC Gym will transform the
81 boutique LA Boxing facilities, which average
5,000 square feet, to the UFC Gym format.
LATIN AMERICA
The IHRSA Latin American Report: Size & Scope
of Key Health Club Markets, sponsored by Hoist
Fitness, was released in September 2012 during
the IHRSA/Fitness Brasil Latin American Conference & Trade Show in São Paulo. The publication,
produced in collaboration with Mercado Fitness
and supported by Fitness Brasil, is the most
comprehensive examination of key Latin American
health club markets available anywhere.
Companhia Athletica
operates 17 clubs
in Latin America
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“There has always been much speculation
about the market size of this region and Brazil
represented this reality well by the lack of data
available,” said Richard Bilton, the president of
Companhia Athletica and member of the IHRSA
board of directors. “We often heard that market
growth was stopped or even that it had grown
at 15% a year, but without the slightest database
to determine if such results were accurate.”
“I believe it is essential for industry
entrepreneurs to have information that will
help them to make good decisions,” added
Guillermo Velez, editor and director of
Mercado Fitness. “In addition, the worldwide industry needs to have a realistic scope
of the opportunities available in our region.”
As it turns out, the health club industry
in Latin America is robust. The fifteen Latin Guillermo Velez
American markets analyzed in the report
generate $5.5 billion in revenue from more
than 46,000 clubs.
Although the fitness sector in Latin America is still
at an infant stage as far as franchising is concerned,
there are already 13 American and two European
brands with franchised centers in the region. Curves,
alone, operates 437 branches in Latin America,
including 188 in Brazil and 142 in Mexico. Likewise,
there are eight Latin American brands growing
within and outside their markets of origin through
franchises, and four more which intend to do so,
according to the report.
“The sector has really evolved during the past
10 years – not only in terms of technology and
equipment in gyms, but also in terms of how people
have changed their habits and how they choose to
work out for health reasons, to look good, or with
the goal to break up their work routines and escape
from daily stress,” said Ricardo Issa, founder and
director of Bolivia’s Premier gyms.
“Here, as abroad, we move toward segmentation, with gyms operating at three
different price levels: high, medium and
low,” added Richard Bilton. “Our clubs
are included within the first group, which
requires a large investment to be built and
targets a differentiated audience.”
Governmental intervention is a major
obstacle to industry growth in Latin America,
Ricardo Issa
according to Edgard Corona, CEO and
founder of Grupo Bioritmo. “In Brazil, there are
different entities which control the sector and
various demands which raise prices, such as
the obligation to hire professionals with university
degrees, and requiring medical clearance,” he
explained. “Additionally, in order for one of our gyms
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to begin operating, we must have authorization from
seven different entities and pay 62 kinds of taxes.”
Bodytech, which has its headquarters in Bogota,
Columbia, has purchased 70% of the shares of
Sportlife, the Chilean club chain founded in 1993
by Mauricio Musiet. Because the Sportlife brand is
a dominant one in Chile, the clubs will continue to
make use of the Sportlife name.
Bodytech has 45 sites in Columbia and six in Peru.
Sportlife has 39 throughout Chile, including both
company-owned and franchised units. Bodytech
plans to double the number of its clubs over the next
five years.
“CONSUMERS ARE MORE
DEMANDING, AND OUR
CHALLENGE IS TO MEET
THEIR HIGH EXPECTATIONS.”
The industry’s growth potential in Chile is limited,
according to Alfredo de Goyeneche, general manager
of O2 Club. “Although at present, the annual income
is approximately $17,000 per capita, only 30%
of the population earns enough to afford a gym
membership,” he said. “Therefore, there is no way
we can reach the 15% penetration achieved in the
United States.”
In the past decade, the fitness market in Peru
has doubled its penetration rate from below 1% to
2%, according to Fabrizio Balli, executive president
of Gold’s Gym Peru. “We trust the local market
can reach penetration levels similar to those of
neighboring countries, ranging from 3% to 5%,”
he added. “This will create a demand which is
not yet provided for by existing gyms in Peru.”
The sector is clearly improving and evolving in
Uruguay, said Luis Moroni, director and founder of
Gimnasios Aerobic. “It is remarkable how during the
past years, not only has the audience attending gyms
increased, but the seasonality of demand is far less
marked,” he explained. “At the same time, consumers are more demanding, and our challenge is to
meet their high expectations.”
Industry growth in Mexico has increased
exponentially in the last two years amidst favorable conditions, reported Enrique Vega, general
director of Sportium. “Not only does the Mexican
population urgently require these kinds of services
in order to improve the quality of life, but it has
begun to develop an awareness of this need,”
he explained.
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“Fortunately or unfortunately, depending on
the point of view taken, the global fitness industry
does not yet fully understand that the Latin
American market is fit for growth and expansion,”
said John Kersh, vice president of international
development for Anytime Fitness. “I am confident
that what lies ahead for Latin America is positive,
and I eagerly anticipate the bright future for
this region.”
It is worth noting that major world sports
events will take place in Brazil in the next few
years. First, the Soccer World Cup in 2014,
followed by the Olympic Games in 2016 in Rio
de Janeiro. Faced with this, the actors in the
fitness industry are preparing themselves to
effectively capitalize on both events.
EUROPE
At the 12th Annual IHRSA European Congress,
held in November in Vienna, Austria, HealthCity
CEO Rene Moos accepted the 2012 IHRSA European
Club Leadership Award. The award recognizes the
European club leader who has done the most to
advance both their own company and the industry.
Moos, a former national tennis champion in the
Netherlands, opened his first tennis club 27 years
ago in Hoofddorp, gradually adding fitness into the
mix. In 2004, he and partners Dennis Aarts and
Eric Wilborts combined their 11 all-inclusive clubs
under the name HealthCity, which today includes
two brands – HealthCity and Basic-Fit – with a
combined 265 facilities in seven countries.
Impulse magazine, which ranks the top 100
franchises annually, named Mrs.Sporty the
number one franchise system in Germany for
2012. According to Mrs.Sporty CEO Valerie
Mrs.Sporty is Europe’s
most successful women-only
fitness franchise
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Bönström, there are five company-owned clubs,
over 550 franchises, and many signed contracts
for franchises to open in 2013.
Danish entrepreneur Rasmus Ingerslev,
the CEO of low-cost chain Fresh Fitness,
will join the IHRSA board as of July 1, 2013.
Ingerslev sees the industry evolving quickly,
and competition intensifying. “As a result,
there will likely be even more segmentation,
which will create clear value propositions
in the niche, low-, mid-, and high-end
Rasmus
markets,” he predicted. “On the positive
Ingerslev
side, I believe this will help attract more
members, growing the overall market. My concern
is that we’ll see bubbles in segments that grow too
fast, specifically the low-cost sector, and collapses
in the middle-market.”
Hard Candy Fitness (HCF), the global luxury
brand founded by Madonna and New Evolution
Ventures (NeV), the private-equity firm based in
Lafayette, California, has announced its intention
to open a club in Rome in 2013. HCF has entered
into a partnership with Dabliu, a major Italian
fitness network, to develop the market.
The X-Fit Group, which owns and operates
33 fitness facilities in Russia and abroad, making
it one of the country’s three largest club companies,
launched a unique franchising initiative in 2012.
Its FitStudio Franchise will allow existing clubs to
come together beneath the umbrella of an existing
brand. The small budget clubs, which will average
2,250 square feet in size, won’t pay a royalty or
franchise fee, but will enjoy a number of benefits,
including training, advice, support, advertising,
and discounts on new equipment.
UK-based Fitness First recently underwent a
radical restructuring process, which First Fitness
Group CEO Andy Cosslett says will see it emerge
as largely debt-free and ready to invest in new
sites and new equipment.
“It’s never nice to have your business spoken
about in negative terms, but you have to tough it
out, and you have to respond,” he told CBI. “We’re
going to come out of all of this much stronger than
we were when we went into it.”
“AS THE SECOND-LARGEST GLOBAL ECONOMIC
POWER, THE CHINESE
MARKET IS RIPE FOR
DEVELOPMENT.”
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ASIA PACIFIC & AFRICA
The industry in Australia is thriving, according to The
Australian Fitness Industry Report 2012, published
by Fitness Australia. Last year, the Australian fitness
industry generated over $1.8 billion in revenues, and
contributed some $1.4 billion to the country’s gross
domestic product.
“While largely I believe that Australia
generally fared better than most countries
in avoiding an economic recession, our
region is still suffering from a lack of consumer confidence,” said Kristen Green,
General Manager of Aquafit Fitness and
Leisure. “This is evidenced by the decline
in retail sales and expenditures on discreKristen Green
tionary items such as gym memberships.
Increased consumer savings, coupled with
competitive pressure from small clubs
offering inexpensive membership options,
has resulted in a conscious business strategy
to focus on value adding for our members.”
IHRSA senior research manager Melissa
Rodriquez anticipates rapid growth in
2013 in India and China, two of the world’s
largest economies. “Anytime Fitness and
Snap Fitness have each expanded their
franchise network overseas to encompass
India,” she said. “As the second-largest
global economic power, the Chinese market
Melissa
is ripe for development.”
Rodriguez
New Zealand, in particular, has embraced
CrossFit, boasting approximately 45 facilities.
The exercise concept – which relies less on traditional
fitness equipment and more on truck tires, sand
bags, shipping ropes, and other items, has grown in
popularity because people want something different,
said Darren Ellis, who opened his CrossFit gym in
Aukland five years ago. “They all say the same thing –
that they’re bored with the commercial gym model,”
he explains. “That’s why these gyms are taking off.”
Vivafit, the European brand of women-only gyms,
signed two new master franchising contracts for the
Middle East for Qatar and Bahrain. These two new
signings are the 7th and 8th master franchise agreements for Vivafit. The agreement signing was hosted
by the government trade mission AICEP in Riyadh,
Saudi Arabia, with the official visit of the Portuguese
Minister of Health Paulo Macedo who witnessed
the second signature. The Vivafit master franchise
partner of Qatar is the company “The Forum”,
represented by its founder and general manager
Bassem Othman Rajab Majeed. The Forum operates
in Qatar and in Dubai specializing in engineering,
franchising, beauty salons and now fitness.
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Vivafit continued its
growth in 2012 by
expanding into the
Middle East
Vivafit celebrates its tenth anniversary this year
and is currently operating in six countries: Portugal,
Spain, Uruguay, Cyprus, Singapore and India.
Virgin Active also sees an opportunity in
Singapore. The first club, at Raffles Place, will
be joined by at least five others in Singapore over
the next few years, according to the company.
Virgin Active is also investigating other potential
locations in Southeast Asia. “Other than Singapore,
we are looking at a number of other Southeast
Asian countries, including Thailand, Malaysia,
and Indonesia,” said Mark Blackman, managing
director at Virgin Active Asia-Pacific.
Virgin Active boss Sir Richard Branson has
answered a call made some years ago by former
South African President Nelson Mandela to improve
the country’s health clubs. His company is investing
in a new facility in Sandton, which will set a new
standard for health clubs across South Africa. The
club, which is designed for a discerning market and
will include a wellness suite with doctors, dieticians
and physiotherapists, a state-of-the-art cafe and a
spa, is scheduled to open in August 2013, making
it the 108th club in South Africa.
“Nelson Mandela called years ago asking me to
save South African health clubs and you know when
he calls you jump onto the next plane,” said Branson.
Opportunities Abound
Consumer trends, particularly “the consumer hourglass,” introduce both challenges and opportunities
for the future. “As customers gravitate toward the
higher and lower ends of the market, middle-market
players will come under pressure,” said industry
consultant Bryan O’Rourke, who is the cofounder
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and CEO of Integerus. “At the high end, spa and
resort facilities are flourishing, along with experiential
niche models, such as cycling and mind/body studios.
At the budget end, operations with business models
like that of Planet Fitness are expanding. Many clubs
in the middle are trying to be everything to everyone,
but they’re at the greatest risk.”
The health club industry is ripe for consolidation,
according to Rick Caro. “The theme for over
16 years from the financial community is that the
health club industry is one of the most fragmented
that they have ever studied,” he explained. “Beginning in late 2011 and for all of 2012, several major
club companies were sold to other club companies.”
At the end of the day, however, less than 1% of all
of the U.S. clubs were
consolidated, he added.
In 2013, as the provisions
of the Affordable Care Act
go into effect in the U.S.,
physicians and hospitals
have even more reasons to
improve the health behaviors
of their patients, Dr. Edward
IHRSA CEO Joe Moore presented
Rick Caro with the inaugural
Phillips, founder of the
IHRSA Lifetime Achievement
Institute of Lifestyle Medicine
Award during IHRSA 2013
in Brighton, Massachusetts,
told CBI in January. “Therefore, health clubs have
an unprecedented opportunity to reach out to the
medical community by providing safe, high-quality,
effective, and affordable programs for the broad
population of patients, including those with some
medical risks,” he said. In this way, clubs can
become valuable allies, helping to extend the
medical continuum to include exercise. U
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